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The newly launched crude mini contract seems to be gaining traction with the contract registering a turnover of `1,488 crore in the first four days of its trading. The open interest (the total number of outstanding contracts that are held by market participants) has also been high 10,000 lots per day.
The new contract attracting investors attention bodes well for the exchange which is coming out of the crisis kicked off by its erstwhile promoter Financial Technologies which was declared not ‘fit and proper’ by the Forward Markets Commission. Kotak Mahindra Bank recently acquired majority stake in the exchange.
The sudden sharp fall in crude oil prices has led to many small and medium enterprises hedge their exposure on the exchange platform. The lot size of crude contract is of 100 barrels (one barrel equals about 159 litres) while it is 10 barrel for crude mini.
A lower lot size help SME hedge even a small portion of exposure by setting aside lesser margin. The contract attracted trading interest from small glass manufacturing, heat treatment and plastic processing companies, which consumes large quantity of products derived from crude oil.
The price risk associated with large number of crude oil derivatives such as bitumen, furnace oil, asphalt, naphtha is in sync with the crude oil prices. Small industries which are using these byproducts can use the new contract to hedge their risk effectively as done by many SMEs in mini contracts of gold, silver, aluminium, copper, nickel, lead and zinc.
Jayram, President, Mandya Industrial Association, Karnataka said a lower denomination contract of 10 barrels in crude oil help us hedge price risks at lower cost since many of members use small quantity of crude oil by-products such as furnace oil, which have a direct correlation with crude oil prices.
Brent crude prices have fallen by about 60 per cent in last two quarters to about $51 a barrel, a level not seen in the last five and a half years. The unexpected fall in crude prices has its own set of challenges as many entities have signed contract at a higher price.
Paresh Shah, Director, Association of National Exchange Members said the healthy participation of market participants in the crude mini contract reflects the trading interest from the crude value chain participants.
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